With more and more people working as contractors, it makes sense that lenders have taken steps to better cater to this demographic. Nonetheless, when working as a contractor is combined with a poor credit history and a bad credit rating, it can still be tricky to get a good deal. A lot of contractors with a poor credit history risk being declined by high street lenders due to their strict criteria.

Here's our guide on mortgages for contractors with bad credit, where we cover how to find the right lenders, how to increase your chances of being approved and what steps you can take to help you secure the best deal.

Can I Get a Contractor Mortgage with Bad Credit?

Yes, you can get a mortgage as a contractor even if you have bad credit. However, the combination of poor credit and less predictable income can limit the number of lenders and products available to you, making it harder to find a competitive deal.

Many lenders are now able to offer the same products to contractors as to employed people, so finding a mortgage as a contractor shouldn’t be a problem. The main struggle you may face is finding a suitable adverse credit lender that can cater to your specific circumstances as a contractor. For example, lenders assess your affordability differently as a contractor so you’ll need find an adverse credit lender that can do this. Lenders may ask you to provide additional evidence to prove your income, and you'll possibly have to prove that your income has been stable over a longer period of time compared to other borrowers.

Poor credit is a problem to lenders because it will suggest that you have trouble managing your finances, and you could be more likely to miss payments, make late payments, or default on the mortgage entirely. This would mean that the mortgage lender has to repossess the house to recoup their losses, which is something both lenders and borrowers would rather avoid.

All of this essentially means that you’ll need to find an adverse credit lender that accepts applications from contractors. The easiest way to do this is through a bad credit mortgage broker like John Charcol.

Are There Credit Issues that Might Stop Me from Getting a Mortgage?

Some credit issues are sufficiently severe that you may not be able to get a mortgage at all if the issue is recent. For example, you'll likely be unable to get any kind of mortgage if you've had a repossession or bankruptcy within the past 12 months, even if they've since been settled. You’ll usually find that you’ll have more mortgage options once these have been settled for 3 years or more. Nonetheless, it’s always best to talk to an experienced broker to see what your best options are.

What Credit Issues Can Make It Harder to Get a Mortgage?

There are many credit problems that can make it harder for you to get a mortgage at a competitive rate, but they needn't stop you from getting a mortgage entirely. The main thing to look at is how severe the credit issue is, as well as how long ago it was. Mortgage lenders prefer to see that issues were minor and that they were some time ago. This helps suggest that you’re more likely to keep up with your mortgage repayments now.

Some of the main issues that mortgage lenders will look at include:

  • Low credit score
  • Using too much of your available credit and credit card limits
  • Late payments
  • Missed payments
  • Unauthorised borrowing and overdrafts
  • Mortgage arrears
  • Repossession
  • Defaults
  • County court judgments
  • Individual voluntary agreements
  • Debt management plans
  • Bankruptcy
  • Lots of recent hard credit checks

You'll also find it harder to get a mortgage if you have more than one of these issues. The more problems that lenders can see on your credit history, the more concerned they’ll be about lending you money.

What Credit Score Do I Need to Get a Mortgage?

There is no standard credit score that you need to get a mortgage. This is because different lenders will have different requirements and credit score calculations – some adverse credit lenders don’t credit score you at all when carrying out a credit check. If you’re worried that you cannot get a mortgage with your credit score, you should focus on improving your score and get in touch with a broker like John Charcol who has experience with adverse credit mortgages.

What if I Have No Credit Score?

Having no credit score can also make it hard for you to get a mortgage. This is because lenders will not have any evidence that you can handle making repayments on time. It could also mean that you are new and inexperienced with credit products, which could be a concern. If you have no credit rating you will likely also need an adverse credit lender.

Bear in mind that it’s highly unlikely you have absolutely no credit score or credit record. Simple things like paying your phone bill or tax all attribute to your credit profile.

Is It Hard to Get a Mortgage as a Contractor?

It’s certainly not always harder to get a mortgage as a contractor than it is as an employed person – it ultimately depends on your situation and history of contracting. For example, some lenders require that a contractor has worked for a certain number of years consistently before they’ll consider their application.

One other thing that can make it more complicated for contractors in general is the fact that lenders will calculate your affordability differently; they might use your hourly rate, day rate or contract rate. Some lenders may even class you as self-employed and will require multiple years of accounts to prove your income level.

What Do I Do if I Get Rejected for a Mortgage?

Getting rejected for a mortgage is not uncommon if you have unusual circumstances, such as being a contractor with poor credit. Quite a few high street lenders and other major lenders do not deal with these types of mortgages. However, even if one lender has refused you, this does not mean that other lenders will be unwilling to help. If you're struggling to get approved, you should use a mortgage broker like John Charcol to access specialist adverse lender mortgages that may be more suitable.

How Can I Find Specialist Adverse Lender Contractor Mortgages?

It can be hard to find specialist adverse credit lenders yourself. This is because many of these lenders don't deal directly with clients. You'll also often find that a lot of high street lenders and mainstream lenders will not consider offering bad credit contractor mortgages.

If you need to find a contractor mortgage but have poor credit, you should look at contacting a broker like John Charcol to make sure you get access to the best rates and deals for your situation.

How Can a Broker Help Me Get a Contractor Mortgage with Bad Credit?

Using a mortgage broker can help you secure a better deal than you might have found by yourself. At John Charcol we have access to adverse credit lenders that borrowers cannot contact directly. In addition, our experienced mortgage advisers can assess your case and manage the entire process for you – all while advising you on your best options. This means we make the process easy and can direct you towards a lender with suitable criteria that enables them to give you the best deal, especially when it comes to affordability and making the most of your income.

What Terms Do Adverse Credit Lenders Usually Have?

If you need to go through a specialist adverse credit lender, you should be aware that they often have slightly different terms compared to regular mortgage lenders to compensate for the additional risk they take on. One of the most notable things is that you will often have to pay a higher interest rate on your mortgage. Some lenders may also require a bigger minimum deposit amount – e.g. at least 15% - or they’ll lower the amount that they're able to lend to you.

Deposit Size for a Contractor Mortgage with Bad Credit

If you're looking for an adverse credit mortgage, you may have to pay a higher deposit percentage to be able to secure a loan.

Paying a bigger deposit reduces the LTV (loan-to-value) and therefore the amount you borrow. This helps to reduce the increased risk taken on by the lender by lending to an adverse credit borrower. It also means that you'll pay less interest in the long run as you’re borrowing less, which can be very useful considering the higher rates typically offered on adverse credit mortgages.

While some lenders will accept applications with a 10% deposit, you might need to provide 15% or more in order to secure a more competitive deal.

How Can I Improve My Credit Rating?

If you're struggling to get an adverse credit mortgage as a contractor, you could look at ways to improve your credit rating. This could give you access to more lenders and better deals.

Whether you have poor credit or no credit rating, you can improve your credit rating by trying the following:

  • Making payments on time - be sure to make all payments on time and avoid missing any payments due
  • Use a lower portion of your available credit - if you're using too much of your available credit, it might suggest that you're struggling to manage your finances
  • Settle any CCJs, IVAs, and defaults - it's important to have all major credit issues settled before you start looking for a mortgage if possible
  • Avoid having too many hard credit checks in a short amount of time - hard credit checks show up on your credit report and too many over a short period of time can put off a lender
  • Waiting - the more recent credit issues are, the more of an impact they can have on your credit score. It may be worth waiting until issues are further in the past before applying for a mortgage

Summary: Contractor Mortgages with Bad Credit

Getting a mortgage can be challenging as a contractor with a poor credit rating. There are various things you can do to try to increase your chances and access to better deals, such as using a mortgage broker like John Charcol, putting forward a bigger deposit and using adverse credit lenders.

Here at John Charcol, we have experienced brokers who have the expertise needed to help you get a poor credit contractor mortgage. We have access to a wide range of poor credit lenders and know which lenders have criteria that aligns with your situation and can therefore give you the best deal. Get in touch today to see how we can help you secure a mortgage that suits your needs. Call us on 0330 433 2927 to get started.

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